June 6, 2007 / 5:14 PM / 10 years ago

Russia coal exports to start falling

LONDON (Reuters) - Russian coal exports are likely to start falling from 2009/2010 in favor of domestic demand, Igor Gribanovsky, a director of SUEK, Russia's second largest coal exporter, said on Wednesday.

Major coal exporter Russia has the highest coal cash costs in the world -- the cost of mining coal and transporting it to an export point.

Russia's rail costs to port are going to rise $7 a tonne during the next three years from the current $36 a tonne. Port handling charges are also going to increase, he said.

At the same time, Russia's domestic demand for coal is mounting, he said.

Russia's government has decided to reduce gas consumption in power generation and increase coal use, to maximize gas exports.

This will require a extensive building of coal-fired power generation capacity, totaling 40 to 50 gigawatts between now and 2020, he said.

Russia's domestic coal demand will rise from a current 130 million tonnes a year to 326 million tonnes by 2020, under one scenario, he said. A more cautious scenario forecasts domestic demand rising to 252 million tonnes by 2020, he added.

"In any case, demand will at least double," he said.

"I think from 2009 there will be some fall in exports, a little bit, but from 2010 we will see a bigger fall," he said.

However, Gribanovsky was not forecasting a sudden or total halt to Russian coal exports.

"I think exports could fall to around 50 pct of current levels in about four years time. While we can make money by exporting, we will. Why wouldn't we?" he said.

"But I can see in a few years we are likely to be able to get better prices from domestic sales than we can get for netback export prices," he said.

Russian coal producers could eventually, like their Chinese counterparts, switch between domestic and export sales depending on which offered the greatest profit margins.

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